Page 27 - CCCA61_2013

CCCA_V7No1_CoverStory-FIN_CCCA 2/12/13 4:49 PM Page 27 The Canada-China Foreign Investment Promotion Cover and Protection Agreement: Key clauses investors to go after the Chinese govern- • National treatment • Minimum standard of treatment ment in a dispute without seeking the It means that a state must accord certain This clause is intended to ensure that help of the federal government makes it rights and privileges equally to both foreign investors are provided with proper due more enticing for smaller Canadian firms players and locals. In other words, a process as well as “fair and equitable looking to invest in China, Dawson says: Canadian company with investments in treatment and full protection and security, “If you’re a large company, like a China would receive the same advantages in accordance with international law,” Bombardier, Scotiabank or Manulife, you as its local Chinese counterpart. according to the agreement. can go and invest in China without a lot However, there is a big caveat: “If there is • Protections on transfers of funds of other protections because you’re big one major limitation with this FIPA in terms “Once you do invest [in China] and earn a enough to create the protections you need. of ensuring market openness, it’s how profit there, you’re permitted to freely You’re big enough to hire local lawyers, to national treatment is provided,” Greg transfer funds from the investment back to establish yourself and do whatever you Kanargelidis of Blake Cassels Graydon says. the home country,” Kanargelidis says. need to in order to do business in that “There is an absence of national treatment • Provision concerning expropriation higher-risk environment. What this agree- rights provided in the pre-establishment This provision is “very important,” he adds, ment does is lower the risk by providing a phase. What this means is once an invest- because “expropriations can only occur for reliable avenue for dispute settlement and ment is established in China, the investor a public purpose, under due process of law a clear basis under which you can use it. will receive national treatment at least as and in a non-discriminatory manner and, So, it lowers the risk for smaller Canadian good as the treatment accorded to Chinese only then, when compensation is provided investors that don’t have as high a profile.” nationals — but only once the investment to the investor.” In fact, some of those big players also has been established. Prior to the establish- In order words, Cauchon says, “This is support the FIPA. For example, Montreal- ment, the Canadian investor doesn’t have not going to stop [the Chinese government] based Bombardier Inc., which has been in the same rights as the Chinese national.” from proceeding with an expropriation, but China for more than 50 years and has three So, this clause doesn’t provide market it’s going to make sure that if you face an joint-ventures with 4,000 employees, sees access to China — and companies looking expropriation, some rules will have to fol- the FIPA “as an additional benefit because to enter the market will still have to obtain lowed and that the compensation you’ll be we like to invest in countries where these the same permissions that they did previ- receiving will be at fair market value.” types of agreements do exist. It gives us ously. Still, it’s worth noting that this will • Dispute resolution protection as Canadian investors,” says also benefit Canada, says Martin Cauchon, Perhaps the most important of the provi- Daniel Desjardins, the company’s senior a partner in Heenan Blaikie LLP’s interna- sions, Canadian investors will now have vice-president, general counsel and corpo- tional business law group in Montreal and recourse to a new dispute-resolution rate secretary. “[The FIPA] gives you secu- a former cabinet minister in the Chrétien mechanism. It allows a Canadian investor rity that if you’re treated unfairly, or expro- government. “Both parties will be able to to claim damages from a breach of the FIPA priated, you’ve got recourse to a tribunal block a transaction. It means that Canada as a result of Chinese government interven- you wouldn’t have otherwise.… It shows will still have the right to review a transac- tion directly to an independent tribunal the seriousness [on China’s part] in the fact tion under the Investment Canada Act.” rather than the Chinese court system, that it welcomes foreign investment, so it’s • Most-favoured nation (MFN) status which some view as “opaque” and “cor- a positive sign.” This is similar to national treatment in that rupt.” The tribunal will have an arbitration However, others believe the deal is investors must be treated no less favour- panel composed of three arbitrators: one fraught with peril and won’t actually ably; however, not as between foreign and selected by each party and the third jointly deliver the protections it’s intended to local players, but between various foreign selected by the first two arbitrators. The tri- provide. “There are some very important players of the same status. bunal would then have the power to order limitations to these protections from the “Here, unlike the national treatment compensation for the Canadian investor. point of view of Canadian companies in clause, it’s pre- and post-establishment,” “China has a long way to go to put in an China,” says Gus Van Harten, an associate Cauchon says. “To clarify what that administrative system that makes it reli- professor at Osgoode Hall Law School in means,” adds Kanargelidis, “a Canadian able,” says Carleton University Professor Toronto and an ardent critic of this FIPA. investor can expect to receive the best Michael Hart. “That’s one reason why these “First of all, to actually initiate an arbi- treatment China accords to investors from agreements are useful: They ensure that tration against the Chinese government countries with MFN treatment — even at investors, when they have a dispute with will be extremely expensive and will cost, the pre-establishment phase.” the state, will get a proper hearing.” PRINTEMPS 2013 CCCA Canadian Corporate Counsel Association 27